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					      The IMF Articles of Agreement:
      Principles of Forex Policy of IMF
             Member Countries
Presentation for Inter-University Competition “Forex Trader 2006”, Tajik Central Stock
                  Exchange, October 17 and 31 and November 7, 2006




                       Luc Moers
         IMF Resident Representative in Tajikistan
      Disclaimer: Views presented do not necessarily represent those of the IMF
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion
   Why was the Bretton Woods System,
    comprising IMF and World Bank,
                created?
• Avoid past mistakes: disastrous economic
  policies that contributed to Great Depression of
  the 1930s and WW II
  - “Beggar-thy-neighbor-policies”
  - Protectionism and tariff wars

• Rebuild confidence in international cooperation
  and international financial system after failure of
  League of Nations and two World Wars
       The Breakdown of World Trade
              World trade, 1929-1933
                   (in millions of U.S. dollars)


3000
2500
2000
1500
1000
 500
   0
       1929         1930           1931           1932          1933
         Kindle be rge r, C., "The World in De pre ssion 1929-1939."
The Roles of IMF and World Bank
IMF (Article I)                 World Bank


• Promotes international        • Reconstruction and
monetary cooperation,           economic development
expansion of international
                                • Project financing
trade, and “orderly”
exchange rates                  • Microeconomic

• Financial assistance to its
members experiencing
balance of payments
difficulties

• Macroeconomic
   Operationalization of the IMF
• Surveillance: Monitoring and policy advice
• Lending: To support reforms to adjust to BOP problems,
  and reduce external vulnerability
   – Financing provided as part of IMF “program”
   – Financing is collateralized by program “conditionality”
• Technical assistance: Building institutional capacity

In the areas of

• Macroeconomic policies
• Financial sector policies
• Advise on other reforms that have a macroeconomic
  impact
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion
                Article IV
In particular

• General obligations of members:
  International cooperation
• General forex arrangements: Fixed, floating
  etc
• Surveillance over forex arrangements:
  Assigned to IMF
                  Article VIII
In particular

•   Avoidance of restrictions on current payments
•   Avoidance of discriminatory currency practices
•   Convertibility of foreign-held balances
•   Furnishing of information

But transitional arrangements possible, though only
  with explicit IMF approval (Article XIV)
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion
 Member countries generally accept these
 Articles, but in principle that still leaves
room for a lot of different forex regimes…
  Pegged systems

  • “Hard” Pegs (currency boards, dollarization, currency
    unions)
  • “Soft” Pegs (adjustable, crawling, horizontal bands,
    crawling bands)

  Flexible systems

  • Managed float
  • Pure float
Main Criteria for Choice of Forex Regime

  •   Capital mobility
  •   Trade linkages
  •   Vulnerability to external shocks
  •   Inflation reputation
  •   Flexibility and sustainability of fiscal policy
  •   Labor market flexibility
  •   Level of foreign reserves
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion
  National Bank of Tajikistan Forex
        Policy over Time…
• Tajikistan joined the Fund in 1993, availing itself
  at that time of the transitional arrangements of
  Article XIV
• Tajikistan eliminated those restrictions over time
• Introduction of Tajik Ruble in 1995, and Somoni
  in 2000
• With effect from December 9, 2004, Tajikistan
  accepted the obligations of Article VIII
• As a result, Tajikistan maintains an exchange
  system that is free of restrictions on current
  international transactions (but not on capital
  transactions)
             Continued…
• Since August 2005, the NBT has increased
  the frequency of calculating and announcing
  the official exchange rate from a weekly to
  a daily basis
• The NBT currently maintains a managed
  floating forex regime with no preannounced
  path for the exchange rate
    D




                 2.1
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                                                                                               3
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 28          4
                                                NBT Official Exchange Rate




    -F
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31          5
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31 -05
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3 0 - 05
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          -0
                                                                                                                                 Exchange Rate: SM/US$, end 2000 - September 15, 2006




 28          5
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31          6
   -M
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31 -06
   -A
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                                                Booth Exchange Rate




  5-         6
     Se
        p-
                                                                                                                                                                                        Forex Movements in Tajikistan




           06
  8-
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        p-
 14        06
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            6
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion
                  Conclusion
• IMF focus on international cooperation and
  “orderly” exchange rates based on bad historical
  experience
• IMF operational tasks (Surveillance, Technical
  Assistance, and Lending) and Articles of
  Agreement should all be seen in this light
• No single forex regime best for all countries in all
  circumstances; most important that underlying
  macroeconomic policies are consistent with choice
  of forex regime
• Tajikistan’s forex policy has been increasingly
  liberalized and, in the longer term, will continue to
  evolve with the development of the economy
            Outline of Talk
•   IMF 101
•   Forex Policy in the Articles of Agreement
•   Forex Policy in Member Countries
•   Forex Policy in Tajikistan
•   Conclusion
•   Questions/Discussion

				
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